Pathways towards instability in financial networks

• DOI: 10.1038/ncomms14416
• Publication Date: 2017-02-21T16:02:44Z
• Authors: Marco Bardoscia; Stefano Battiston; Fabio Caccioli; Guido Caldarelli
• Keywords: Financial Distress; Financial networks

Following the financial crisis of 2007-2008, a deep analogy between origins instability in systems and complex ecosystems has been pointed out: both cases, topological features network structures influence how easily distress can spread within system. However, models, details institutions interact typically play decisive role, general understanding precisely topology creates remains lacking. Here we show processes that are widely believed to stabilise system, i.e. market integration diversification, actually drive it towards instability, as they contribute create cyclical which tend amplify distress, thereby undermining systemic stability making large crises more likely. This result holds irrespective interact, showing policy-relevant analysis factors affecting be carried out while abstracting away from such details.